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Following President Trump’s executive order last week that paved the way for alternative assets to be included in 401(k) plans, the Department of Labor’s (DOL’s) Employee Benefits Security Administration has followed suit. The DOL has rescinded a Biden-era supplemental statement that cautioned fiduciaries against considering alternative assets in 401(k) investment portfolios.
The previous administration’s supplemental statement warned that most plan fiduciaries would be “not likely suited to evaluate the use of [private equity] investments in designated alternatives in individual account plans.” This assertion had a chilling effect on the market and took a dismissive view of alternative assets and the capabilities of plan fiduciaries, according to the DOL. “This is just another example of how the Biden administration put their thumb on the scale to pick winners and losers,” said Secretary of Labor Lori Chavez-DeRemer. “Instead of allowing Washington bureaucrats to call the shots, we believe plan fiduciaries should decide which retirement investment options are best for hardworking Americans.”
“Retiring with dignity is a key part of the American Dream, but far too few Americans have the opportunity to realize that dream today due to unnecessary government overreach,” Deputy Secretary Keith Sonderling said. “By repealing the Biden administration’s stifling guidance, we look forward to a future where innovative retirement products can deliver increased upside, diversification, and security to the American worker.”
The decision to rescind the previous supplemental statement follows President Trump’s latest executive order, “Democratizing Access to Alternative Assets for 401(k) Investors,” which directs the DOL to re-examine its guidance regarding fiduciary decisions, ensuring asset allocation funds that include alternative investments are available to plan participants.
The decision to include alternative assets in 401(k) plans “marks a welcome return from the Department to the principles-based approach that fiduciaries have always followed under the ERISA,” said the Investment Company Institute, in a statement. “The speed at which the Department has moved following President Trump’s recent executive order is an encouraging sign of its commitment to implementing the order in full and offering millions of American retirees the chance to participate in private market offerings through their professionally managed workplace retirement plans.”
However, the decision to offer private equity as an investment option in workplace retirement plans has been met with criticism, particularly by Senator Elizabeth Warren (D-Mass. and ranking member of the Senate Banking, Housing, and Urban Affairs Committee). The executive order will expose Americans’ retirement savings to risky investments with little transparency and weak protections, as well as to highly volatile crypto assets, she said.
The executive order scales back regulatory controls on alternative investments, directing the Labor Secretary and Securities and Exchange Commission to make it easier for investors to access alternative assets in defined-contribution retirement plans as well as to clarify or revise rules that could help shield the industry from litigation risk.
In a June report to Congress, the Office of the Investor Advocate at the Securities and Exchange Commission (SEC) announced that it would prioritize the risks and benefits of “private market investments in retirement accounts” as an objective for 2026. “If more plan sponsors offer plan participants exposure to private market investments through target-date funds or managed accounts under defined-contribution plans, there may be risks, as well as benefits, for retirement savers that include alternative investments as a component of their retirement accounts,” read the report.
“Our office continues to research and listen to all investors’ concerns and act as a constructive liaison between those investors and the commission,” said Cristina Martin Firvida, the SEC’s Investor Advocate.
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From: BenefitsPRO
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